BACKGROUND

Recovery of Debts Due to Banks and Financial Institutions Act, 1993 was the former legislation exercised for the recovery of default” loans. According to the Narasimhan Committee’s suggestions, this act was passed and introduced to the public authority. This statute established “Debt Recovery Tribunals and Debt Recovery Appellate Tribunals for the rapid adjudication of disputes” over truly rising non-recovered dues.

SARFAESI ACT, 2002

The SARFAESI Act (Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002) is an Indian statute. It empowers banks and other financial institutions to auction off defaulters’ homes or businesses to recoup loans. Under this act, India’s first asset reconstruction Corporation (ARC), ARCIL, was established.

The SARFAESI Act, 2002 was established by the government in the year 2002 to give financial institutions a safeguard in the event of defaults. The statute, among other things, allows banks to seize and sell the security against a loan if the borrower defaults.

The SARFAESI Act of 2002 is an act to govern the securitization and reconstruction of financial assets, as well as the enforcement of security interests, and to provide for a central database of security interests created on property rights, and for matters associated with or incidental thereto.

Secured creditors (banks or financial institutions) have a number of rights, under section 13 of the SARFAESI Act, 2002, for the enforcement of security interests. If a borrower of financial assistance defaults on a loan or installment and his account is classed as a nonperforming asset by a secured creditor, the secured creditor may require written notice before the term of limitation expires.

CASE LAWS RELATED TO SARFAESI ACT

The Supreme Court of India announced the Sarfaesi Act constitutionally legal in the case of Mardia Chemicals Ltd. v. ICICI Bank¹ on April 8, 2004. 1 The Court held that a borrower may file a debt recovery tribunal complaint against the lender without having to deposit 75% of the outstanding amount. The lender may sell the assets if the tribunal does not stay the ruling.

OBJECTIVES OF THE ACT

The Financial Assets Securitization and Reconstruction Act (SARFAESI Act) governs the securitization and reconstruction of financial assets. The Act establishes a single database of security interests based on property rights or factors related to or incidental to property rights.²

FEATURES OF SARFAESI ACT

Security interest enforcement: It allows secured creditors to enforce their security interests without the need for court intervention. In the event of a borrower’s default, the statute allows a bank or financial institution to issue a demand notice to the borrower, requiring him or her to settle the debt within sixty days of receiving the notification. Reconstruction of financial assets: The act empowers bankers and financial institutions to conduct appropriate management, sale, settlement, or possession procedures as needed under SBI standards. Securitization of financial assets and issuance of security receipts: The “major goal of the securitization act is to make security interest enforcement possible, i.e., to take control of the assets pledged as collateral” for the loan.

WHAT IS A HOME LOAN

A housing/home loan, normally called a mortgage, is a sum of money borrowed by an individual from a bank or other lending institution. The borrower must repay the loan the amount plus interest in Easy Monthly Instalments, or EMIs, over a period of time that can range from 10 to 30 years, depending on the loan type.

TYPES OF HOME LOANS

There are various types of house loan choices available to fit each individual situation. Home loans can be used to purchase either commercial or residential properties.

Here are some of the several types of house loans available.

• Property Purchase Loan – You can purchase any house or home within your budget with this loan.
• Construction Home Loan – This loan can be used to cover the costs of constructing a home.
• Land Purchase Loan – This loan can be used to purchase a piece of land.
• Home Improvement Loan – This loan can be used to improve and renovate your home.
• House Repair Loan – Use this loan to cover the costs of home repairs and restoration.
• Home Extension Loan — With this loan, you can increase the amount of built-up area in your home.

SARFAESI ACT PROCEDURE IN CASE OF HOME LOANS

Before a bank may repossess a property and claim it to recoup its debts, it must follow specific procedures. The SARFAESI Act procedure is the framework in which they operate. Under the SARFAESI Act, if a borrower is unable to repay his loan (including home loans) for six months, the bank has the legal right to issue him a letter requesting that he settle his debts within 60 days. If the borrower fails to pay this obligation, the financial institution has the authority to sell the property in a distress sale to recoup the debt. Within 30 days from the day order is passed, a person, in evading, who is aggrieved by the bank’s order may appeal to the appellate authority established by law.³

The bank has the choice to lease or sell the property once it has taken possession of it. It can also provide another entity the right to use the property. The revenues from the sale are used to pay down the bank’s outstanding debts first. If there is any money left over, it is paid to the defaulting borrower.

CONCLUSION

Despite the fact that the SARFAESI Act was enacted to help banks prepare blocked funds in non-performing assets, the various provisions of the act have caused genuine buyers great grief. The many rules aimed at balancing the needs of borrowers and banks have changed the balance of power in favor of the banks. The majority of the time, these powers are employed by banks to fit their own interests above the interests of the buyers. In this context, it is acceptable for the common courts to take on more social responsibility for the borrowers’ greater interests on the one hand, and to share the banks’ obligations for assembling funds from the numerous non-performing assets on the other.⁴

REFERENCES

1. Home Loan, https://www.adityabirlacapital.com/abc-of-money/what-is-a-home-loan
2. SARFAESI ACT APPLICABILITY, https://cleartax.in/s/sarfaesi-act-2002
3. All you want to know about Sarfaesi Act, 2002,
   https://www.thehindubusinessline.com/opinion/columns/slate/all-you-wanted-to-know-about/article31559808.ece
4. Sarfaesi act, https://en.wikipedia.org/wiki/Securitisation_and_Reconstruction_of_Financial_Assets_and_Enforcement_of_Security_Interest_Act,_2002

This article is written by Dalima Pushkarna student at Dr. Ram Manohar Lohiya National Law University, Lucknow.